Click for Philadelphia, Pennsylvania Forecast


Print This Issue
Front Page
All About Teaching
Subscribe to E-Alamanc!


Click here to print this document in PDF format.
NOTE: Adobe Acrobat Reader is needed to print this document.
Click here to download it.

COUNCIL State of the University

The October 29 Council meeting was primarily devoted to the annual State of the University presentations. President Judith Rodin's report, including the portion presented by Landis Zimmerman appears below. Next week's issue will contain Provost Robert Barchi's presentation, which dealt primarily with the Strategic Plan.

Cilck here for Provost Barchi's Report


I will report on a number of issues; I will then ask my colleague Landis Zimmerman to speak on the endowment performance, and then the provost will give his report. We have tried to coordinate them so that we are all talking about quite different things and you get a broad range of the many things going on in the University.

Let me set the context for Mr. Zimmerman's report by talking just a little bit about the endowment--not from the perspective of its performance--but from the perspective of development. Clearly last year was extraordinary because of the $480 million that we raised, $150 million was from the Annenberg Foundation: $100 million for the school and $50 million for the Sunny Lands Trust which is doing a number of very interesting conferences related to the area of youth at risk. But even netting out the $150 million, last year's performance given the economic climate was very strong and we are on a very strong path this year. We already have $51 million or so in pledges, last year at this time we had $48 million, absent the Annenberg gift, and $51 million the year before. What is notable this year is that we have $62 million in receipts compared to $35 million at this time last year and $34 million at this time the year before. This is where I think you can really see the impact of the economy really turning around so that people are beginning to pay pledges that were made and feel more comfortable in doing that. Many people seem to be rushing to get some '03 tax credits by paying on some of their pledges when the market has done relatively well this year. That's all to the good because then we can put it into either the endowment, if it's for the endowment or into the programs for which they are designated, and of course put it to work much more quickly. We are quite enthusiastic about those data.

We are planning a capital campaign for the University of Pennsylvania. We're in a wonderful situation of having extremely generous alumni and donors, but as you know well seeing the new strategic plan, it is extraordinarily ambitious and it really relies on ratcheting up the level of annual philanthropy significantly. So we are planning the kind of campaign that would do that. We are doing a number of feasibility studies and some understanding both of the market and the economy and also how our external constituencies are receiving and responding to our strategic plan. That's very useful because we know what our strategy is and where we are going. We've had broad discussion many times, as members of the community, about that strategic plan; and the schools as well are doing that. If there are areas that are of high strategic significance that don't appear to excite or interest some of our prospective donors, then we will do an even better job of educating our donors before we go out and start a campaign and ask for money. But we will not take money for things that really are not high institutional priorities. We will come back to the actual performance of the endowment in a moment.


We continue to move quite aggressively I think in both setting goals, and in trying to address those goals. Just to remind us, we had a committee working on gender equity as it related to the faculty in particular, and we received a report from that committee over a year ago. During the last academic year, the Provost's Office has done a number of things and the Faculty Senate Executive Committee actually did a number of additional things that have helped to move us further toward those goals. It's very clear that meeting any target with regard to faculty hiring and faculty retention requires intervention not only at the school level but also truly at the department level where the hiring decisions are made. During the last year the Provost's Office has required of the schools and all of the departments that we keep track of--and report on--information regarding the number of women who are in the applicant pool for faculty positions, those who are interviewed and ultimately those to whom offers are extended. We have been actively monitoring the number of women on search committees relative to the number of women on the faculty in the department. The Faculty Senate has been terrific--the leadership particularly--about reminding the faculty that this is a serious and shared goal to increase the number of women on the faculty and to do well with regard to retention.

We have some data which we will make available in a report shortly but I want to provide a bit of texture around what we think are some successes after a more vigorous intervention in the last year. These are women who started July or September of this year, as well as a number of completed recruitments where the faculty member isn't starting until later this academic year. For example we have two new women coming in mathematics and the same thing is true in engineering. In Arts and Sciences last year 24.9% of the faculty were women and this year 27.1% of the SAS faculty are women. What's notable about that is that 47.5% of the recruits were women. So what you are seeing is a much more stepped-up recruitment process and a lot of attention to retention that's providing those numbers. 9.6% women in engineering has gone up to 10.7%, again we know of cases who have accepted a year from now so the recruiting season actually is better than it looked. 16.3% in the prior year at Wharton, 17.7% this year, so again movement in the right direction. The School of Medicine went up from 25.2% to 25.9% and here too almost half the new recruits were women. So this is an ongoing process.

It clearly isn't something that can be completely addressed in any single year, but the very elaborate new monitoring process, the incentives that are in the pipeline, and the increased attention on the part of the faculty, I think have done just what we, and certainly what the Gender Equity Committee, hoped and that is to really raise everyone's consciousness and continue to do a better job of recruiting and retaining women faculty members. That is particularly true in some departments and much less true in others. That's why the monitoring from department to department, rather than just aggregate data, is so important and we are continuing to work there.

In parallel fashion a Minority Equity Committee was appointed, again this was focusing solely on faculty, and that committee, we hope, will resume steam over the next couple of weeks, and I thank the Faculty Senate leadership for taking the initiative to reanimate the leadership of that committee and to help us to move it forward. We are very eager for the outcome of those deliberations as well.


I want to talk a little more elaborately about Penn's continuing commitment to the neighborhood and to the community. It is something that is very important to us institutionally and certainly is ingrained in so many areas throughout the University. It would be hard to do justice and thank completely all of the organizations and all of the groups throughout the faculty and students and staff who do such a wonderful job and who are so interested in moving ahead Penn's institutional commitments to our neighborhood and neighbors in West Philadelphia. I'm going to highlight just a couple.

The Center for Community Partnerships last year celebrated its 10th anniversary. We have a $10 million fundraising campaign going on for the Center--an endowment campaign--the Center has a much larger annual budget. It continues to get more faculty and students involved in academically based community service learning courses. It has a number of strong and important initiatives in the community and this is one clear source of energy in our community interventions and one that nicely links the academic and volunteer or the applied component of Penn's efforts. Faculty and students from the schools of Nursing, Medicine, Dental Medicine, Arts and Sciences, Social Work and Education are all working together in the newest of the Center for Community Partnerships programs. That's the one at Sayre Middle School which is off the ground  and I think that we'll benefit very significantly from the involvement of so many schools and so many of our colleagues.

We have a standing Trustee Committee called Neighborhood Initiatives Committee that I formed with the Trustees about four or five years ago when we began even more aggressively our interventions in West Philadelphia. That Committee meets regularly; it stays in close contact with, and indeed now monitors the University on our progress and goal-setting. It's very important to know that because this is an institutional and important Trustee effort; it's not an ad hoc committee--it's one that now has statutory responsibility for our neighborhood initiatives and exists with other Trustee committees like Budget and Finance or Audit or Academic Policy, and I think that's very important.

Glenn Bryan, our director of City and Community Relations, hosts First Thursday Meetings, where Penn leadership--and it varies from month to month who's there--shares information related to what's going on within the University, what the University is doing that ought to be consulted upon with the West Philadelphia community. It was at these meetings, as well as in many other venues, that we discussed construction projects, the Alexander School, retail initiatives and the like. It's a very popular venue and one that we think gives us a predictable source of interacting with members of the community in a more informal way.

The Division of Business Services has institutionalized Penn's program of economic inclusion. We now review every project, every construction project, every renovation project and every purchasing program that we have throughout the University, to set minority inclusion goals for contracting. This has dramatically changed the way we do business at Penn and I think has helped to achieve its goal, which is to help to build economic infrastructure and capacity back into the West Philadelphia neighborhood in a way that really is a win-win. We buy materials, we do construction, and this allows the community to benefit with their business plans and programs to benefit from those activities of the University.  We have raised University procurement from minority-owned vendors from $9 million about six years ago to $60 million this year. It is a very significant initiative and the inclusion on the construction projects is also quite substantial.

Penn has made financial commitments to the West Philadelphia community in the education area. We are subsidizing for ten years the Alexander School--our neighborhood public school in West Philadelphia--and we have taken responsibility for three of the lowest performing elementary schools in the West Philadelphia area through the Graduate School of Education as part of the State takeover of the Philadelphia School System.  I announced last year, but probably it's worth bragging again given that it's bragging for the Graduate School of Education, that our three schools under the leadership of GSE, showed the largest improvement in reading scores of any of the takeover schools last year. The faculty and students from GSE who have become really deeply involved in these three schools are doing a wonderful job.

We renewed our commitment to the University City District at the end of last year for another five years. We've made an additional three-year commitment to UC Green, which is the community greening project that Penn began in 1998. I hope that those of you who are in West Philadelphia really do see the results of those programs because they have been quite effective. Our main effort has been to continue to solicit partners for all of these things. We want to have people and organizations in the community, who feel that we are a good partner in these initiatives and that they have some sustainability over time and we feel very optimistic about those relationships and indeed the longevity of these initiatives.


We recently dedicated the Weiss Tech house. It was terrific--it's located at 3340 Walnut St. so you can enter from Walnut St. or you can enter through Levine Hall. It is the newest of our hubs for tinkerers and entrepreneurs. The Provost and I had the pleasure of being there and we saw new student inventions--there is an entrepreneurship fund that the students are able to use to support one another's projects. We saw an energy-efficient ventless clothes dryer, a rollerblading robot, a computer program that makes the use of computers simpler, and one of our students who is already handing out his business cards--because he has five employees, so it has really served well the function which we hoped it would serve. These all are extracurricular, not-for-credit--as Kelly Writers House is, as Civic House is--places where people can come together and really use their imagination and creativity and do things that interest them.

We dedicated Levine Hall earlier this year and it has opened for the department of computer and information sciences and really has done quite a lot to move the ambitions of that department forward. We broke ground for the new bioengineering building--Skirkanich Hall--which will both serve as a home for bioengineering but be the final piece of the puzzle linking all of the engineering buildings together in a much more effective and quad-like way. We're looking forward to the completion of that project.

We will be unveiling the commemorative sculpture for the 125 Years of Women Celebration--the never-ending celebration that was two years ago--and I think we'll finally conclude  with the installation by Jenny Holzer--a world renowned sculptor--a series of benches labeled 125 years. The artist selected quotes--by and about women--from Penn's Archives reflecting the last 125 years. It is integrated into another never-ending project, the work on Hill Field which hopefully will be completed by the dedication  so that we can free once again part of that field for student pick-up athletic activities. But I think the landscape design will be very attractive and will support more linkage to the rest of the community.

We have broken ground for the Life Sciences Building; we have relocated the Greenhouse at least temporarily and continue on-site preparation. The excavation is scheduled for November. That will become the new home for part of the biology department, for genomics, for cognitive neuroscience and in Phase II, the rest of biology and psychology will move to an integrated program on that site. We're very pleased that that will finally be underway.

We're in the design phase for a new McNeil Center for Early American Studies which is going to be on the corner of 34th and Walnut St., diagonally across from Zeta Psi fraternity. That will be a small building that matches in size the fraternity building and will house a very significant program that has developed in the study of the early American period.

The design for the School of Veterinary Medicine's new teaching and research building is also underway. Its occupancy is projected for the fall of 2006.

We have a couple of other exciting announcements on projects that we think the general University community has been waiting for a long time but we're going to take them to the Trustees in November first and make sure that they approve.  You will hear about them in the week after next. We're enthusiastic about launching some of those after clearly a long period of thinking.

We have signed our memorandum of understanding with the Post Office to purchase the land. It's been widely publicized so I won't talk specifically about that except to say, I think a more important thing that hasn't been in the press or in our internal communications, is that we have joined other stakeholders to create the Schuylkill River Development Corporation. These are all the stakeholders on both the east and west side of the river, including Amtrak, SEPTA, builders and developers who own land, Penn, Drexel, and a lot of private developers, and for the first time we have really come together and we are working with the federal government on transportation money, with the Commonwealth on Department of Transportation infrastructure, for bridges--we're working with the Army Corp of Engineers. You will see, moving forward finally, a really integrated plan for the development of the east and west side of the Schuylkill from Bartram Gardens up to the Fairmount Park Water Works area. That's pretty terrific and we won't all be competing with one another, but we're all speaking with the same voice. We expect a lot of progress in that area. It's going to be terrific for Penn in particular, given that it will get us to the river and get us to Center City with a wonderful gateway that's important to other stakeholders in the City as well.

On the east edge of campus, the former Hajoca building, which has gone through many iterations at 32nd and Walnut St., now will become the new home for WXPN and the World Caf„. It's going to feature a 350-seat live music performance venue that certainly will contribute to the vibrancy of Walnut St. and a very visible home for WXPN that has really just continued to grow and succeed. There is a private developer for that project--Dranoff Properties--the developer of the Left Bank.

Finally, also using a private developer we are transforming the Eastern Apparatus Building--which is at 31st St. between Chestnut and Walnut--into a translational, tech transfer research facility. Our partner here is Forest City Radnor. They are investing $55 million in this venture which will meet the Medical School's increasing research needs, and Penn's research needs to create generic lab space, particularly in the biotech related areas.

We've reached 95% occupancy for our retail assets. A lot of retail activity going on or in planning and we are hard at work on energy conservation. We are the largest purchaser in the Commonwealth of wind energy; we continue to win awards for our conservation efforts. We were awarded a 2002 Governor's Award for Environmental Excellence and we were also awarded the 2002 Green Power Leadership Award. This is a tough battle, natural gas prices have gone up and we continue to push our environmental consciousness at the same time the costs of energy have increased dramatically. Now 10% of our energy needs are satisfied by wind power that we've been able to purchase and we're very pleased about that.

With that, I will ask Landis Zimmerman to give a report on the performance of the endowment.


I'm going to talk briefly about fiscal year 2003. I'll give you an example of what our peers did in the same time and then I'll give an update of for the first quarter of 2004. 

Here's fiscal 2003 (table 1). If you start at the top in the center column which is outlined with the box, we earned 4.7% for the fiscal year versus a benchmark of 3.6% so that's a little over a percentage point ahead our benchmark. If you look to the left where it says fiscal year quarter 4, you can see all that performance came in the 4th fiscal quarter, which as many of you may know was a tremendous rebound for stock markets globally. So thanks to the 4th quarter we ended the year substantially positive. If you now look at the domestic and international equities you can see that's where a huge gain was made in the last quarter of the fiscal year. But interestingly the point to make here is that domestic and international equities together contributed only a little over one percentage point to the overall endowment for the year, despite the tremendous rally in the 4th quarter. Since we have half the endowment invested in public equities we got about half a percent out of our 4.7% from public equities. While we're thankful that public equities rallied in the quarter, to me what's more important is all the other stuff because if we got 50 basis points from global equities it means that we got 4.2% from everything else. I think that's tremendously important in a volatile stock market. So for example contributors in fiscal 2003 were our hedge fund portfolio, which is labeled absolute return which is third from the bottom, our high yield portfolio in which we had a pretty meaningful credit bet on in the portfolio and of course investment grade bonds which did quite well. So if you add up our allocation in those three categories it's about 40% of the portfolio and contributed about 12% total return. So I'm quite pleased that in an environment where notwithstanding a good rally in the stock markets stocks performed merely ok, we had other things working in the portfolio that contributed to the overall total return.

Table 1 - FY 2003 Performance Summary




FY03 Benchmark





AIF Composite

Domestic Equity




Wilshire 5000

International Equity





Private Equity




Venture Economics

Real Estate





Absolute Return





High Yield




Citigroup High Yield

Invest. Grade Bonds




Lehman Blended

This is what our peers did last year (table 2). We came in at 4.7% which is above the median return of 4.0%; Harvard came in the highest at 12.5%, Emory came in the lowest at -8%. Although one year is interesting to look at obviously for an institution like ours and our peers, multiyear periods are much more important. So if you look at the three-year period (table 3), we've compounded a 3.5% per year for three years versus a benchmark which lost 3.6% per year for three years. So we've remained positive over a very difficult market environment and not withstanding Harvard's particularly good return last year, we have a better three year number than Harvard's and most of our peers for that matter. Our peer median came in at a 1.3% loss.

Table 2 - Peer Performance Summary

Based on 26 endowments over $1billion




12.5% (Harvard)

25th Percentile






75th Percentile



-8.2 (Emory)


Table 3 - Penn's 3-Year Return is Positive -- Most Benchmarks are Still Negative


FY 2001

FY 2002

FY 2003

3 Years






AIF Composite










Peer Median





I thought I'd give you a snapshot of what the portfolio looks like and I'll make two comments on this slide (table 4). The gray area is the bond portfolio which represents 20% of the endowment so we have an equity heavy portfolio. We think it's important to remain in equity or equity like strategies because to support the institution we believe it's important to earn the long run equity risk premium over bonds. Therefore, we will always be equity heavy. Our global equity portfolio, representing about half of the endowment, is shown on the first three lines of the chart labeled index, U.S. equities, and international equities. Everything below that is what contributed to the performance this year and so we've made a significant effort over the last couple of years as we've repositioned the endowment to add other strategies that will produce total return when public markets don't.

Table 4 - AIF Asset Allocation by Strategy

Portfolio Strategy




W 5000 Index


Market cap weighted

Long U.S. Equities



Mid cap value; 50% in 27 stocks

Long Int'l Equities


Mid cap value, 50% in 34 stocks

Long/Short Equities


30% to 40% net long exposure, 105% gross exposure

Event Arbitrage & Other


Event arbitrage, convertible arbitrage, statistical arbitrage




High yield 46%, distressed & cap structure arbitrage 54%

Real Assets


Initial core plus real estate commitment

Opportunistic Real Estate


Leveraged 2:1, preference for regional operators

Private Equity



56% venture, tilt to franchise firms, 44% buyouts, tilt to small

Total Equities


Spread product


Mortgages and A-rated corporate bonds, shorter duration




Indexed, intermediate duration

Total Bonds


Finally here's where we are for the first quarter of the fiscal year (table 5). I've told our board and trustees that investing is back to a game of inches. We have to grind out performance in every category that we can and for the first quarter we are up 3.7% compared to the benchmark of 2.8% so again we are ahead for the quarter and things are generally working across the portfolio.

Table 5 - 1Q Fiscal 2004 Update



FY04 Benchmark




AIF Composite

Domestic Equity



Wilshire 5000

International Equity




Private Equity



Venture Economics

Real Estate




Absolute Return




High Yield



Citigroup High Yield

Invest. Grade Bonds



Lehman Blended


Dr. Rodin's Closing Remarks

I think it's especially important to note three things about this. I'll just underline Landis' comment that over the three year period which has been the worst certainly in my presidency we were one of few endowments over $1 billion that didn't loose principal during that period.

The second point is that we clearly used the income from the endowment to fund ongoing programs. We have a spending rule at the University, as do all of our peers; the peer group spending ranges between 5% and maybe 4% of the endowment. So in these three years in order to meet our spending rule we were beginning to use principle rather than cut out programs and so we relied on performances before that which were over 4.7% which is the spending rule. We need to rebuild now to make sure there continues to be a buffer for the ongoing programs of the University during the lean years by putting away money in the good years when you make excess of the spending rule.

And finally the performance is really quite important as we go out on a fundraising campaign. A lot of our donors make their money this way too and so they look at how we perform in terms of their willingness particularly to give us funding that will go into the endowment. Some of the toughest negotiations I ever have are with investors who say "why should I put it in the endowment if I can do better." So this is very, very important as we continue to plan for a large-scale campaign.



  Almanac, Vol. 50, No. 11, November 4, 2003